Article: Off With His Head - Is Due Process Past its Due Date?

Off With His Head - Is Due Process Past its Due Date?

Is the untrammeled power of CEOs and other leaders to fire people really so essential for corporate performance? What checks should attend such terminations so that there is at least some degree of fairness observed in the process?

A few months ago, HR groups on social media were abuzz with the news of two CHROs being sacked. One of them had his own message in circulation, explaining how the organization and CEO, whose praises he had been singing not so long earlier, was thoroughly rotten. Other CHROs held forth loud and long on the sheer injustice of these summary dismissals and some even urged HR professional bodies to take up the cases in some way. Now, I did not know either gentleman or the rights and wrongs of their having been shown the door. What struck me as ironic about the outpouring of anger was that the same CHROs, who were expressing outrage about the 'hatchetings', had on frequent occasions, played enthusiastic supporting roles when their CEOs wanted to dispose of other CXOs without following 'due process'.

As I reflected further, it struck me that at least a third of the senior people I have known in the private corporate sector have had their tenures cut short one or more times in their careers because they disagreed with their bosses on matters of principle, policy, or judgment. Mind you, I had limited my thought experiment only to people who were considered highly competent, as evidenced by their sterling careers before (and frequently after) their separations. True, some of them were going through temporary performance challenges but other colleagues, of a more malleable temper, had done worse and still survived. This column is thus clearly not about senior managers who are removed for reasons of performance, integrity, or other misbehavior. It is about CEOs with itchy trigger fingers who know of only one way to deal with opposition and disagreement, even if it is reasoned. Of course, I use CEO here as a shorthand for whoever is (literally) calling the shots. This can be the overseas boss in an MNC or the promoter in a family-run firm and the person designated as CEO may be the one who is shot in these cases.

The bar must be raised for exits unrelated to delivery, ethics, and behavior or when CEO distaste is sought to be guised as one of these

Despite reading tome after tome on effective organizational leadership and the examples of scores of remarkable business leaders being available to them, it seems several of our CEOs insist on learning their problem-solving skills only at the knees of the Red Queen. "The Queen had only one way of settling all difficulties, great or small. 'Off with his head!' she said, without even looking round."1 Hence, the fundamental questions that I pose in this column are whether the untrammeled power of CEOs and other leaders to fire people really so essential for corporate performance and what checks should attend such terminations so that there is at least some degree of fairness observed in the process?

The Divine Rights of CEOs

Even in modern corporate circles, whenever there is talk of trammeling the powers of the CEOs to fire at will, a horrified hush falls on the gathering and people predict managerial mayhem. Their dire predictions don’t fall far short of the ones made by the Bishop of Carlisle when the power of Richard II was challenged2:

"… in this seat of peace tumultuous wars

Shall kin with kin and kind with kind confound;

Disorder, horror, fear, and mutiny

Shall here inhabit ...."

In that case, of course, not only was the king deposed but England survived and prospered despite beheading another one and constitutionally confining the powers of their successors. Many have even argued that the restriction on despotic power was essential for the innovative frenzy that fuelled Britain’s steep climb to its apogee.

There is an interesting parallel to the demand for the CEOs to enjoy unrestricted firing freedom with the justification made for the absolute power of monarchs in times that were politically less evolved than ours. Way back in the sixteenth century, we had political theorists like Robert Filmer claiming that kings had absolute authority, which was founded upon divine right3. We may smile at his claims but they were taken so seriously at the time "that it was Filmer, not Hobbes, Locke or Sidney, who was the most influential thinker of the age..."4 So also should our smiles be curtailed by the manner in which our generation claims no less absolute powers for our CEOs. Political absolutism was never the same again after the likes of Locke opposed it. Perhaps it is time similar winds of liberalism softened the corporate absolutism that governs business organizations today, starting with the arbitrary manner in which tenures are terminated.

Shades of Stalin

Do the virtually absolute powers CEOs possess today to dismiss members of their teams have any practical consequences? Do we really need to run the risk of attenuated performance that may accompany the reduced fear of summary firing? It is my belief that the present state of unchecked liberty to sack is detrimental to an organization’s effectiveness, its ability to make the best use of scarce top-level talent and even to the CEOs own sustained performance.

Josef Stalin was the archetypical red queen and, apart from sanctioning countless executions of people unknown to him personally, had his inner circle petrified by having several of them sentenced to death for the flimsiest of reasons. When he suffered a stroke on 1 March 1953, his attendants did not enter his room for several hours after his accustomed waking time had passed. Even after they did enter and alerted the other Soviet leaders of his condition, so petrified were the latter of his anger, should they have raised a false alarm, many more hours were wasted before a doctor was summoned. "Most likely they understood that Stalin had suffered some kind of serious medical incident … and that it would be best for all concerned, themselves in particular, to let him die"5.

While I do not know of any leadership teams that have delayed medical help to physically stricken CEOs, the analogy may not be as far-etched as might initially appear. Fear of annoying the CEO by criticizing his pet hobby-horse has prevented many a top team from preventing huge strategic mistakes. I am intimately aware of a company which took a disastrous diversification decision and compounded it by a thoroughly flawed execution as well as the choice of a totally unfit business head for it. Several of the veterans who could see a hugely successful corporation being driven into the ground refused to correct the relatively new CEO because they had seen the departure of people who had opposed his whims in the past. One or two people did speak up and added to the 'off-with-his-head' tally – things usually don’t end well for corporate kids who point out the lack of clothes on the emperor! Unlike the case of Stalin, the CEO got off scot-free: it was the company that turned from being an exemplar of Indian corporate success to a chronically ailing has-been.

This is just one of the consequences of people being afraid to speak truth to power because of the capital consequences faced by those who have done so in the past. Matters can get even worse when the CEO is not just making a strategic blunder but is responsible for a serious ethical lapse. As we have discovered in scam after corporate scam involving the CEO, it’s not as if the entire top team is unaware of his or her shenanigans. Apart from those who are directly complicit, the majority are simply too scared to speak out. We can preach all we want about the need for senior managers with backbones but the jelly that fills the spinal cavity of most of them will stiffen only when they are reasonably sure that their heads will not be separated from the rest of their bodies for speaking out. There is even some evidence to suggest that senior leaders are even more susceptible to the potential loss of esteem and social standing (which termination would obviously bring) than those at other levels6.

The ‘I-don’t-like-his-face-so-he-must-go’ terminations must impose a toll so that they become options of last resort

Besides the decisional disasters is the tragic talent wastage since it is the best at the level next to CEO who will have the courage to speak out even if it costs them their careers. Even those who don’t speak up but simply opt out of a culture where they can’t call out CEO errors are likely to be a quality cut above those who choose or have no option but to stick it out. Over a period of time, the quality of a top team is bound to degrade in a dismissal-prone dispensation. Since people at these levels are relatively older, given the bias against age in corporate India, they may well get assignments that do not use all of their capabilities or choose to take themselves out of the workforce much earlier than they need have. Swashbuckling CEOs are indirectly responsible for the national loss caused when rich talent is lost to the system because of their hasty firing decisions.

Is HCF the only way to manage?

When I sounded out some CEO and CHRO friends about this topic, I got two distinct and almost polar opposite reactions. There was the HCF response from those who felt Hire-Compensate-Fire was the normal sequence of corporate existence and that removing any leg of the platform would make it impossible to manage. Then there was the LCM reply coming from leaders who felt Lead-Care-Motivate was the winning formula. Though they did not rule out firing altogether, they considered it a step of last resort which was rarely to be used other than for shortcomings of integrity, performance or basic decency.

If we are unable to shift the balance of fear from those facing expulsion for speaking their minds to those ordering such exits, we will continue to get shocks when healthy organizations flounder despite having what were thought to be strong and course-correcting teams under the CEO

My sympathies clearly lie with the LCM contingent. Through the more than four decades that I have closely participated in the corporate world, I have never seen firing-fixated CEOs deliver more than ephemeral improvements in organizational performance. Even in the country where 'The Apprentice' seems to provide the script for some CEOs (and, at times, even the President), those who can manage without resort to sudden death are held up as exemplars. To take just one of many examples: Fast Company carried a story on Peter Platzer, CEO of Spire, titled 'Meet The CEO Who’s Never Fired Anyone'7. Another example comes from Simon Sinek’s TED Talk on 'How to be a Great Leader'8 which he starts by describing the lifetime employment policy followed by Charlie Kim of Next Jump. Broadcasting lifetime employment as a revolutionary new approach will doubtless bring a smile to the faces of veterans of my vintage who, if they started their careers in groups like the Tatas, saw such a practice virtually omnipresent. I would also opine these groups made some of their most ground-breaking and industry-shaking moves in the years when firing was not an essential part of their CEOs’ repertoire.

Fair Exit Processes

Let us assume that, after due deliberation and giving the concerned executive full opportunity to provide his or her side of the story, the CEO still believes termination is the right decision and effects it. Should organizations treat the matter as done and dusted or pursue such cases a little deeper? The goal, it must be stressed again, is not to make senior corporate tenures totally secure. But the bar must be raised for exits unrelated to delivery, ethics, and behavior or when CEO distaste is sought to be guised as one of these. The balance between moderating limitless firing authority and rendering a CEO into a toothless tiger is doubtless a delicate one to maintain but attempt it we must.

The tiger analogy provides a good starting point for the direction we need to take. My friends who are experts in wildlife inform me that if tigers attack porcupines, the collateral damage is likely be so high that it is a target tigers prefer to avoid. Of course, when they are starved of all other prey, they do attack porcupines despite the risks it involves. I-don’t-like-his-face-so-he-must-go terminations must impose a similar toll so that they become options of last resort.

We can preach all we want about the need for senior managers with backbones but the jelly that fills the spinal cavity of most of them will stiffen only when they are reasonably sure that their heads will not be separated from the rest of their bodies for speaking out

The process of moderation becomes relatively easier for Non-CEO Terminations (NCTs) where the manager who is sacked does not report to the CEO or whose exit has not been decided by the latter. The matter becomes more delicate in cases of CEO Decided Terminations (CDTs) for members of the top team. In both cases, the same four-stage process can be adopted:

Identification: In order that the process doesn’t become too cumbersome, only a few cases of termination or forced resignation must be picked up. Obviously, those responsible for ethical lapses, misbehavior (including sexual harassment) or on a performance watch-list should be excluded from further scrutiny. Importantly, this decision should not depend on whether the concerned executive wishes to take up the matter or let it drop.

Investigation: Previous performance assessments, 360º reports, and the exit interview (preferably conducted by an independent outsider) need to be compiled into a meaningful narrative. The reasoning of the sacking authority together with any supporting information s/he provides must also be impartially presented. This procedure can be overseen by the CHRO for NCTs. For CDTs, the process should ideally be managed by an independent firm of HR evaluators. Such an agency for Board support has already been recommended in an earlier column9 and interested readers may read it for additional elaboration.

Conclusion: All the information gathered at the Investigation stage must be presented to an Examination Committee. For NCTs, this would include the CEO, the CHRO, a senior-line leader of another unit and an independent outsider. Several progressive organizations have appointed an external Ombudsman of repute. S/he would be the ideal choice for being the independent outsider. When the case relates to a CDT, the Nominations and Remuneration Committee (NRC) of the Board should play the Examination Committee role. If the NRC has been active in its role, it should have a fair idea of the rating of the concerned executive and be able to probe insightfully into the reasons for the departure. For both NCTs and CDTs, the respective Examination Committees would take a view whether the termination was justified and, even if it was, whether there were lessons for handling such cases differently and better in future.

Consequence: The findings of the Examination Committee must be shared with the Board (in summary tabular form in the case of NCTs). Depending on how justified or unjustified the Examination Committee finds the actions, this should find its way into their review of the termination decider. Obviously, this can’t be the sole factor governing a CEO’s evaluation but the Board should realize that the fate of people who are not afraid to stand up to power could, one day, determine whether the company itself will stand or fall.

If we are unable to shift the balance of fear, at least somewhat, from those facing expulsion for speaking their minds to those ordering such exits, we will continue to get shocks when healthy organizations flounder despite having what were thought to be strong and course-correcting teams under the CEO. Such CEOs (and their Boards) would do well to reflect on the words of the Roman historian Tacitus:

"Fear is not in the habit of speaking truth. When perfect sincerity is expected, perfect freedom must be allowed; nor has anyone who is apt to be angry when he hears the truth any cause to wonder that he does not hear it."

References:

Lewis Carroll, Alice's Adventures in Wonderland, Macmillan, 1865.

William Shakespeare, Richard II, Act IV, Scene 1, Penguin USA, 2000.

Robert Filmer, Patriarcha, and Other Writing, edited by Johann P. Sommerville, Cambridge University Press, 1991.

John Kenyon, Revolution Principles. The Politics of Party. 1689–1720, Cambridge University Press, 1977.

Joshua Rubenstein, The Last Days of Stalin, Yale University Press, 2016.

Benjamin Edelman and Ian Larkin, Social Comparisons and Deception Across Workplace Hierarchies: Field and Experimental Evidence, Organization Science, Published Online: October 30, 2014.

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